Frequently Asked Questions

1. What is an estate plan?

An estate plan is a set of documents established by you, often with the help of an lawyer, to protect yourself, your family, and your assets during your life and after you pass away. Having a proper estate plan can save your family the agony of trying to arrange your financial and personal affairs if you became incapacitated during your lifetime. In addition, you can be the one who decides how you want your assets to be distributed once you’ve passed away, rather than allowing the laws of intestate succession[1] to control.

2. What are the components of an estate plan?

Most estate plans consist of some or all of the following documents. There may be ancillary documents specific to your situation that need to be prepared, so consulting a qualified estate planning lawyer is crucial during the planning process.

a. Will – This document specifies several different things. It will name the person in charge of managing the process of paying your debts, managing your assets, and then distributing them to the appropriate parties. A Will can also be used to designate the people you choose to take care of minor children you may have. It’s important to note that a Will does not dictate how certain assets such as life insurance, retirement plans, or “joint tenancy” accounts get distributed. It also does not determine how assets held in a Living Trust get distributed. The State Bar of California has a guide on Wills, which provides more specifics.

b. Living Trust – Many people create a Living Trust during their lives to hold their assets. This document explains how the assets held in your trust are to be used during your life and after your death. For example, if you became incapacitated, the Living Trust might specify how you want your trust assets spent for your care. In California, one of the main benefits of a Living Trust is that it helps you avoid the costly and time-consuming Court-supervised process known as probate. When utilizing a Living Trust, it is imperative that you “fund” it with assets by re-titling things like bank accounts or deeding your real estate to your Living Trust. In many instances you can do this yourself, but in other situations you will need an lawyer or other professional to help you.

c. Advance Health Care Directive – Deciding who will make medical decisions for you is impossible once you become incapacitated. The Advance Health Care Directive allows you to specify who you want as your Agent to make medical decisions for you before that happens. You can also use the document to tell your Agent and others whether you want to donate organs or want extreme measures to prolong your life.

d. Durable Power of Attorney – In the same way that an Advance Health Care Directive names an Agent to make health care decisions for you, the Durable Power of Attorney is used to name an Agent to make financial decisions on your behalf.

3. What happens to your assets if you die without an estate plan?

Some types of assets have a predetermined destination when you die. For example, life insurance benefits and retirement accounts generally get distributed to the beneficiaries that you’ve designated for them. If you have life insurance or retirement accounts, it’s a good idea to check who you’ve named as beneficiaries. Other types of assets, unless the law provides otherwise, will be considered part of your “estate” and probate may need to be initiated to help transfer those assets to your heirs. There are some exceptions to this[2] so consulting an lawyer after someone close to you has passed away is a crucial step.

4. What is probate?

Probate is the Court-supervised process where a personal representative is appointed to manage the payment of your debts, collect your assets, and distribute your estate to your beneficiaries or heirs. Unless you own the types of assets referred to above (e.g., life insurance or retirement accounts with proper beneficiary designations), hold title to assets in a specific way (e.g., joint tenancy or community property with right of survivorship), and/or utilize a trust to hold your assets, chances are probate will be required after you pass away. Avoiding probate is ideal for a few reasons.

a. Cost – The cost of probate is state specific; however, in California, the fees are set by law.[3] Personal representatives are paid based on the value of your estate using the following schedule:

1.       4% of the first $100,000
2.       3% of the next $100,000
3.       2% of the next $800,000
4.       1% of the next $9,000,000
5.       0.5% of the next $15,000,000
6.       A “reasonable amount” determined by the Court for anything above $25,000,000

To illustrate how this would work, let’s imagine you died owning a home valued at $1,000,000. The fee that your personal representative would be entitled to is $23,000. It’s important to remember that the calculation ignores any mortgage or debt on the property, so even if there were a $500,000 mortgage on the property, the calculation is still based on $1,000,000. In addition, the lawyer that helps you with the probate is entitled to an equal fee, so after all is said and done, total fees of $46,000 may be paid from your estate (not including other costs such as court filing fees, publication fees, fees for certified documents, etc.), which reduces the amount that is left for your beneficiaries or heirs.

b. Time – Again, the process of probate is state specific, but in California, it is relatively rare for probate to take less than a year to complete. Often, the timeline extends to one and a half or two years. This is a long time for your beneficiaries or heirs, who may need more immediate access to the assets of your estate.

c. Control – Probate is required regardless of whether you die with or without a Will, except where you owned assets with beneficiary designations that have been properly filled out (e.g., life insurance, retirement accounts, etc.), held title to your assets in some special way (e.g., joint tenancy, community property with right of survivorship, etc.), or you owned your assets through a Living Trust. If you die without a Will in California, the laws of intestate succession have a very specific scheme for the distribution of your assets, depending on whether you’re married or in a registered domestic partnership[4] and whether you have descendants.[5] This may not be ideal if you have family members who are incapable of responsibly handling gifts from your estate.

5. Why might a Living Trust be a good idea?

Many people utilize Living Trusts to avoid the hassles and costs of probate and provide specific instructions when it comes to the distribution of assets. In addition, because probate is a Court-supervised process, your Will becomes public for the world to see. Typically for a fraction of the cost of the probate process, it is possible to construct a Living Trust and all of the other documents required for an effective estate plan. In some cases, it may not make sense to go through the expense of having a Living Trust and other estate planning documents prepared, but consultations with estate planning lawyers are often free, so it doesn’t hurt to get a bit more insight into your specific situation to see what makes sense.

6. Helpful Resources

There are many resources available online to learn more about this topic. Here are some helpful resources provided by the State Bar of California Bar to check out:

a. Do I Need Estate Planning?
b. Do I Need a Will?
c. Do I Need a Living Trust?

7. What are the Next Steps I should take?

Reach out to a qualified estate planning lawyer to learn more about what you can do to protect yourself, your family, and your assets.

[1] The laws of intestate succession provide a default system for distributing your assets, if you failed to execute a Will or other estate planning devices such as a Living Trust. In California, Probate Code §§ 6400-6455 lay the general framework for intestate succession.

[2] Some of the exceptions include property held in joint tenancy or community property with right of survivorship. In California and some other states, there are procedures to collect assets of an estate where the value is relatively small. See California Probate Code §§ 13000-13210.

[3] See California Probate Code §§ 10800 and 10810.

[4] See California Probate Code § 6401.

[5] See California Probate Code § 6402.